Unit 6 Exam: Tax Characteristics and Strategies Flashcards
By definition, portfolio income includes all of the following EXCEPT:
a. stock dividends
b. oil and mineral royalties
c. investment sales profits
d. savings account interest
c. investment sales profits (p. 74)
portfolio income: includes interest, dividends, royalties, and annuity income, as well as gains or losses from the sale or exchange of portfolio and certain investment assets
Active income consists of earnings from all of the following EXCEPT:
a. wages
b. business profits
c. stock dividends
d. capital gains
d. capital gains (p. 74)
all money earned in the normal course of working or conducting a trade or business is identified as active income; wages salaries, commissions, and annual operating profits from operating non-passive businesses
On improved income property, all of the following are allowable expense deductions EXCEPT:
a. interest charges
b. principal payments
c. maintenance costs
d. depreciation
b. principal payments
Stepped-up basis requires:
a. a gift inter vivos
b. a death
c. a like-kind exchange
d. a cost segregation report
b. a death
A step-up in basis is the readjustment of the value of an appreciated asset for tax purposes upon inheritance. The higher market value of the asset at the time of inheritance is considered for tax purposes. When an asset is passed on to a beneficiary, its value is typically more than what it was when the original owner acquired it.
Key word: benificiary
When an investment property purchased for $150,000 is refinanced with a new loan for $175,000, the $25,000 is:
a. taxed as portfolio income
b. taxed as active income
c. taxed as passive income
d. not taxed
d. not taxed
Under current tax law, long-term capital gains are:
a. limited to $25,000
b. taxed at 20% maximum
c. eliminated
d. applied only to commercial property
b. taxed at 20% maximum
if asset is held < 12 months:
-gains taxed at ordinary income tax rate
if asset is held > 12 months:
[0%] for 10%-15% bracket
[15%] for 25%-35% brackets
[20%] for 39.6% bracket
The losses sustained when selling an investment property must first be deducted from any capital gains made in the year, with any excess losses:
a. allocated to shelter active income
b. marked off the books
c. carried forward to shelter any future capital gains at the rate of $3,000 per year
d. deducted as an operating expense
c. carried forward to shelter any future capital gains at the rate of $3,000 per year
Passive income is derived from which of the following?
a. interest on savings
b. dividends from stocks
c. income from rentals
d. royalties from oil leases
c. income from rentals (p. 74)
all rental is considered passive income unless it has a strong services component, such as hotels and office business centers, or it is a short-term vacation rental with very frequent marketing and turnover.
A commercial property was purchased for $100,000 with 20% allocated to the land. At a straight-line depreciation rate of 2.564% per year, what is the adjusted basis of this property at the end of the 10th year, allowing for rounding errors?
a. $2,051
b. $20,510
c. $59,490
d. $79,488
d. $79,488 (p. 79)
100,000 x (0.20) = 80,000
80,000 x (0.02564) = 2,051.2
2051.2 x (10) = 20,512
100,000 - 20,512 = 79,488
Recaptured depreciation is taxed at what rate?
a. 15%
b. 25%
c. applicable long-term capital gains rate
d. applicable ordinary income rate
b. 25% (p. 77)
recaptured depreciation is the sum of all the depreciation deductions taken over the years of that investor’s ownership.
it is taxed at 25% no matter the taxpayer’s ordinary tax bracket.
